HDFC Bank making inroads into Kerala’s deposit, advance markets

KOCHI: HDFC Bank has been able to sweep substantial deposits from the state while most Kerala-based banks, except Federal Bank, remained onlookers, struggling to attract deposits to their kitty.

An analysis of the movement of deposits and advances portfolios of Kerala-based banks within the state over the past year prompts one to wonder whether the mainstream banks such as South Indian Bank (SIB) and CSB Bank have taken a break from their deposit-raising and lending activities.

Low deposit growth

SIB could manage a growth of just 8.25 per cent in the deposits raised from within the state in the past year up to June 2024, from Rs58,530.44 crore to Rs63,361.79 crore.

CSB Bank’s performance was yet weaker as the growth was confined to only 6.77 per cent – from Rs13,373.37 crore to Rs14,278.-4 crore during the year.

Kerala Bank

Curiously enough, the Kerala State Cooperative Bank (KSCB) or Kerala Bank, witnessed a negative growth as its deposit book contracted by 9.38 per cent during the period, from Rs69,063.70 crore to Rs62,603.04 crore.

Federal Bank cool

Here too, Federal Bank remains an outlier, as the general squeeze in deposits doesn’t seem to have affected Kerala’s largest bank.

Federal Bank deposits witnessed a decent growth of about 15 per cent as its deposit book in Kerala expanded from Rs1,29,883.52 crore to Rs1,48,817.14 crore.

HDFC Bank

It may be worth mentioning here that recently, credit head of a local bank sounded a bit upset while discussing with businessbenchmark.news about HDFC Bank’s reported plans to expand its branch network extensively in Kerala.

“HDFC Bank is astute enough to recognise that Kerala, with its large NRI community, could serve as a lucrative deposits market. Moreover, with the strength of the HDFC brand, the bank can effortlessly amass deposits from this region,” he expressed with concern.

But quite enigmatically, HDFC Bank never deployed the substantial deposits it raised from the Kerala market to repair its significantly elevated CD ratio which stood at about 104 per cent as of March end, 2024.

While HDFC Bank deposits soared 26.56 per cent during the year from Rs35,637.33 crore to Rs45,102.48 crore as of June end, 2024, the bank’s advances surged by a much higher 77 per cent, from Rs32,699.52 crore to Rs58,122.26 crore during the year.

As if the bank is unoncerned about its already high CD ratio, HDFC Bank allowed its CD ratio in Kerala to spike from 91.76 per cent to 128.87 per cent as of June end, 2024.

Kerala banks’ CD ratio down

But curiously, the already low CD ratios of South Indian Bank (SIB) and CSB Bank, against repeated directions from RBI, worsened further though Federal Bank managed to hold it flat.

SIB’s CD ratio fell from 46.7 per cent to 43.69 per cent, CSB Bank’s ratio dropped from 41.26 per cent to 38.91 per cent, whereas Federal Bank saw its CD ratio marginally improve from 43.20 per cent to 44.28 per cent during the past year.

HDFC’s challenge

Post-merger, HDFC Bank’s CD ratio had surged to unsustainably high 104 per cent as at March-end 2024. The bank has stated that it would endeavour to bring down the ratio which could be quite a challenge

“It is our endeavour to bring down the credit-to-deposit ratio to pre-merger levels and our focus would be to maintain adequate liquidity buffers, repayment of erstwhile HDFC borrowings as and when they mature, including weighing any prepayment opportunities that may arise, and pursuing profitable sources of lending,” said Sashidhar Jagdishan, the MD & CEO of the bank, in a letter to shareholders.